Signs of the Times

The following is part of Quick Pivot that was published
for our subscribers June 22, 2011.

SIGNS OF THE TIMES:

"Gold to Reach $5000 Due to Supply Shortages""Exhaustive report by Standard Chartered rests upon 'central banks have
turned from being net sellers to net buyers of gold.'"

~ CNBC, June 14, 2011

It took a long time for commonsense to overwhelm book-learning. Central banks
becoming net buyers is an important and practical step away from financial
demagoguery.

Standard Chartered is a big and diverse bank and their research department
should be complemented for such a bold conclusion. However, we could not endorse
the price target as it is based upon fundamental analysis of supply and demand,
which in any metal is often treacherous.

Typically gold's real price, as determined by a reliable consumer price index
sets a significant low in the year a great financial mania concludes. This
time around, the reversal occurred in May 2007. As we calculate it, our Gold/Commodities
set a low of 143. On the first post-bubble recession this soared to 518 and
represented an increase in operating margins for gold producers.

Then with the first business expansion this turned down as commodities enjoyed
a cyclical move that ended with a mania. Gold's real price slumped to 303 early
in the year and in setting the uptrend in mid-April anticipated the selloff
of stocks and commodities.

Quite likely, this is on a cyclical increase as the global economy enters
a cyclical recession.

One of the features of the post-bubble world is weak recoveries and severe
recessions. Even mainstream economists recognized that the last recession was
the worst since the early 1930s.

Gold's real price is anticipating the start of a recession and so is the dramatic
reversal in silver prices relative to gold. The latter is a very old indicator
of an important change in financial markets. Just as old and reliable as the
recent reversal from narrowing credit spreads to widening.

Typically, post-bubble contractions have prevailed for some twenty years as
gold's real price improved. This has made gold mining the premier industry
as orthodox business and industry suffer chronic pricing pressures.

Gold's nominal price is of interest to traders, some of whom are positioning
to "punish" the corrupt Federal Reserve System. Serious investors know the
importance of gold's real price.

Every bull market climbs a wall of worry and then in a rush of confidence
leaps over - only to find Murphy waiting.

Murphy's Law states "What can go wrong will go wrong", and while
Murphy has been reliable, unless he was an historian he could not imagine the
distress of a post-bubble contraction.

What's Next?

The possibility of a rebound showed best in the S&P. Two weeks ago this
page noted that if the stock market remained down for a week, a Capitulation
would register. We also had a target of 1250 and Thursday's low was 1258 -
close enough.

Monday's ChartWorks reviewed the "Springboard" pattern, which usually indicates
a good relief rally. This is working out and as it improves it could provide
relief to base metals as well.

This could run for some weeks and generate some overbought conditions.

Excessive speculation was expected to complete in April and fail. Financial
markets would rebound and then likely churn around through the summer.

May's reversal in corporate spreads has become impressive enough to indicate
further widening in September. This sector could also churn around through
the summer.

Our Momentum Peak Forecaster has again earned a lot of confidence. In early
December this indicated that a significant rush of speculation was building.
In January it signaled that it could complete in March-April.

When the big action focuses upon commodities as in 1973 and in 1980 the signal
has been close to the beginning of a recession.

Economic numbers and widening credit spreads seem to be confirming this melancholy
possibility.

The opinions in this report are solely those of the author.
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